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FEDERAL RESERVE BOARD
WASHINGTON
X-3187
August 19, 1921.
CONFIDENT I!L
SUBJECT!.
Farm Products Paper.
Dear Sir:As you may know, there is very strong pressure here, both in Congres·sional and Administrative circles, to do something for the !'arming intei'ests
of the country.
All manner of unsound plans have been pressed upon the
attention of the :Board, which h"'s, however, consistently taken the view
that discount rates of Feder~1 Reserve Banks ought normally to be somewhat
higher th~tl durrent r"tes.
The reply is made, however, that times are not
normai and thai they cannot become normal until the farmer becomes more
prosperous.
One plan which has been suggested, and in fact has been voted on fav. orably by the directors of one of the Federal Reserve Barikst is that a low
rate be established on paper secured by agricultural products, to be effective only in cases where the member banks will sign a certificate that the
money has been loaned to producers or merchants at a rate not more than
2% higher than the s:t:ecial discount rate offered.
The :Board thinks that
this plan is absolutely unsound and I do not think that it would ever consent to any such arrangement.
The plan which has been suggested would
give a profit of 40% to borrowin~ banks on each such transaction, and would
commit the Board to the principl; that a borrowing bank is entitled to a
profit in its rediscount transactions.
I enclose an alternative plen which I have wo.rked out and which is
submitted to you for your consideration and frank cotlll'tent..
I may say that
it meets with the favor of some members of the :Board, although it seems to
me that in ordinary circumstances it is one which should not be considered.
However, with the limitations provided it appears that there is nothing
particularly harmful about it, for if the plan should be adopted and the
statement, which 'is ·now submitted to you, given tc the public, it would
show on its fece that it is offered in order to facilitate orderly marketing and a definite time limit is set for its operation.
It might open
the we.y for Federal Reserve Banks· to relieve themselves of farm pressure
wa\hout making any drastic ch~nges in their general discount schedules.
It would leave the rate to the borrower as a ttatter to be deterrrined
between him and the bank to which he applies for a loan.
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X-3187
-2-
If the Boa~ should decide to make the announcement outlined,
lach Federal Reserve Bank could determine for itself whether or not
it desired to establish a special seasonal rate on farm products paper
end if so, eech bank could establish for itself its own rate, subject
to the approval of the Federal Reserve Board.
I would appreciate an
early reply, giving 10ur candid opinion as to the advisability of
such a statement being issued by the Board.
Very truly yours,
G 0 V ERN 0 R.
FOLLOWING iEDERftL RESFRVE .AGENTS
NO COPIES TO ANY OI'HERS
Caldwell Hardy. Richmond
~- Heath, Chicago.
John H. Rich, Minneapolis
W. McC. Martini St. Louis
Asa E. Ramsay, Kansas City
W. F. Ramsey, Dallas
Joseph A. MCCord, Atlanta
John Perrin, San Frencisco
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X-3187-a
TENTATIVE REGULATION
-
S~IQTLY
CONFIDENTIAL
FARM PRODUCTS PAPER!
ln order to aid in the orderly marketing of the major crops
of the country, the Federal Reserve Board has authorized all Federal
Reserve Banks to establish a special seasonal rate on Farm Products
'aper, which is defined as follows: notes, drafts and bllls having
a maturity not exceeding ninety days, exclusive of days of grace~
adequately secured by shipping documents, warehouse~ compress or
terminal receipts, or other such documents,conveying security title,
covering readily ·marketable agricultural staples of the new crop.
Authority is given Federal Reserve Banke to establish this special
seasonal rate on Farm Products Paper, as above defined, with the
expectation that the benefit of tbe rate will be passedalong by
nsmber banks to the borrower or primary producer. Any renewals
after Dinety days wUl be made at the regular rate and notice is
given that this special seasonal rate will lapse after January 31.
1922,· after which time all offerings of Farm Products Paper, as
above defined, will be subject to the rate then prevailing for
commercial paper.
tbe Board has consistently advocated the policy of orderly
marketing, for any undue rush of staple products to market results
in congestion of transportation facilities, in a strain upon the
banks 8lld usually in a temporary depression in prices, which,
without benefiting the ultimate consumer, works a hardship upon
the producer.
8/19/2l.
@FedFRASER